Research
PEER-REVIEWED PUBLICATIONS:
A Hard Look at SPAC Projections (with Beth Blankespoor, Brad Hendricks and Greg Miller) (2022, Management Science 68(6):4742-4753)
Cited in the SEC's Proposed Rules to Enhance Disclosure and Investor Protection Relating to Special Purpose Acquisition Companies, Shell Companies, and Projections
Select Press: Bloomberg, Harvard Law School Forum, Regulatory Compliance Watch, U-M News, Foster Business Magazine, Vinson & Elkins, The SPAC Conference
SSRN: Top 3% of All-Time Total Number of Downloads (updated 23 Apr 2023)
Abstract: Firms’ use of special purpose acquisition companies (SPACs) to go public has increased dramatically, leading to market and regulatory debate about their use of projections. Examining SPAC mergers from 2004 through 2021, we find that 80% of firms provide projections for four years ahead on average, with approximately one-quarter of recent projections extending more than five years. For the sample of SPAC mergers with observable postmerger revenue, we find that only 35% of firms meet or beat their projections. This proportion declines for forecasts that are longer horizon, and nonserial SPAC sponsors miss forecasts by greater percentages. When we compare SPAC projected revenue growth with benchmark samples of firms completing an initial public offering (IPO) and matched firms, the SPAC projections are approximately three times larger on average than benchmark firms’ actual revenue growth, with even greater differences for long-term projections. After the merger, firms reduce their use of projections, providing them at statistically similar rates as benchmark firms. Overall, the evidence supports concerns that the SPAC merger includes highly optimistic projections.
WORKING PAPERS:
Dodging Regulation: The Real Effects of Retirement Plan Reporting (Job Market Paper)
Abstract: This paper examines the effect retirement plan reporting regulation has on employees and their retirement wealth. Using data from the Department of Labor (DOL) and exploiting mandated disclosures and audits that trigger when retirement plans reach certain participant thresholds, I find that firms close to the thresholds attempt to stay beneath them by pushing out former employees. I estimate over 500 plans with over 60,000 participants are able to avoid these requirements each year. The employees’ retirement savings are cashed out or put into forced-transfer individual retirement accounts (IRAs) where the savings decline over time as the account fees outweigh the statutorily conservative investment returns. I further find firms try to avoid the audit requirement in particular. Even though the current reporting regulation is ostensibly mandated to safeguard employees, the results show managers take action that undermines those protections.
Mandatory Disclosure of Institutional Investors' Fossil Fuel Investments (with G. Miller and C. Williams)
Abstract: Regulators around the world have begun to require investment companies to provide information regarding fossil fuel investments to non-capital market participants. In this paper we examine whether such disclosures impact the investment portfolios and/or investment policies of the disclosing firms. Using a 2016 law change that required some U.S. insurance companies to disclose fossil fuel investments on a public website, we find the disclosing insurers reduced their fossil fuel investments by approximately 20% relative to the non-disclosers and changed their formal investment policies. Additionally, the discloser firms became more likely to adopt risk and investment management policies that relate to climate change. We further find the divestment and new policies remain after the mandatory disclosure policy is rescinded.
Private Employee Stock Ownership Plan Returns (with J. Aland and H. Packard)
Abstract: This paper examines the return properties of private employee stock ownership plans (ESOPs). Most ESOP plans are sponsored by small private firms. ESOP valuations are determined annually by a valuation specialist. Our evidence suggests that private ESOP returns may be subject to bias from management. Specifically, we note stark discontinuities in the distribution of private ESOP returns around the zero percent threshold, with a bias toward positive reported returns. Surprisingly, our tests suggest that a government-mandated CPA audit does not appear to mitigate the preference for positive returns. Instead, positive return instances seem to increase with mandated audits, particularly with those performed by smaller (i.e., non-“Big 4”) auditors. The positive bias does appear to lessen in firms that appoint more experienced trustees, who may be more likely to act independently of management in overseeing the plan. Recent government initiatives aim to increase the prevalence of ESOPs as a path to building retirement wealth for rank-and-file employees. Our descriptive results suggest that employees who are owners of their private employer firms may not always receive accurate information with regard to the performance of their investment.
PAPERS IN PROGRESS:
Retail Investors Preference for Lottery Stocks: A Social Explanation
Abstract: In this paper, we examine the effect social interaction has on retail investors' selection of stocks with high volatility and high skewness, also known as lottery stocks. To overcome the selection and simultaneity issues that arise when measuring social effects, we use the results of an online experiment that involves tens of thousands of individuals who vote every five minutes for which investments to buy or sell. Consistent with the model in Han, Hirshleifer, and Walden (2020), we find social interaction leads to lottery stock selection, and chat and group characteristics mediate the relation. We further address an unresolved question in the literature by documenting how retail investors communicate about lottery stocks.
NON-PEER REVIEWED PUBLICATIONS:
A Simple Solution to Better Protect Retirement Plans (solo-authored)
Paper submission for the ACEBC Employee Benefits Simplification Award.